‘Good’ vs. ‘bad’ debt? How to talk to your kids when you’re in the red

Pretty much everyone has debt — Canadian households, on average, carried a debt obligation of $171 for every $100 of disposable income in the third quarter of 2015. That’s the highest level recorded since 1990, according to the Parliamentary Budget Officer, and makes Canadian households more indebted than any other G7 country.

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However, there are suggestions not all debt is created equal. A new US study suggests that what kind of debt you carry effects children’s socioemotional well-being differently, in a comparison of so-called “good debt” versus “bad debt”.

“We were trying to really get a sense of debt across a range of sources: mortgage debt, things like credit card debt, automobile debt, and student loan debt,” said Jason Houle, assistant professor of sociology at Dartmouth College and co-author of the study.

Using data from the U.S. Bureau of Labor statistics, researchers examined and compared families’ debt loads and well-being, following 9,011 children from 1986 – 2008.

They used the Behaviour Problems Index (BPI), a set of 28 questions regarding children’s behaviour, to measure and determine the incidence and severity of behavioural problems.

“We find that families who have more home mortgage debt, more education debt, yes their kids are doing better than kids with less. Which makes sense — we’d expect those are wealthier families, better off families they have access to credit,” said Houle, adding that stress factors are there, but largely to a lesser extent.

“It’s really the negative effects of unsecured debt that kind of stick, when we compare families over time.”

Money problems often can’t be hidden from children; here are some tips to ease the strain.

Frame the conversation

Parents need to take charge of the conversation with their children on money and debt.

“Thinking about the money that you do have, what do you value, how do you want to spend it, what do you want to show your children,” said Gillian Frise, counsellor at Family Service Toronto with a focus on family and parenting.

“We don’t want to send alarm bells to our kids around financial concerns that may not be age-appropriate for them to worry about.”

Prepare yourself to say no to your children, and how to answer their demands and wants that are outside your budget.

“Say ‘actually this is our budget, this is what we’re going to put money towards’ rather than all the ‘no, no, no, you can’t have.’ Frame it more in terms of ‘this is what we’re spending it on.'”

Identify how financial stress if affecting your parenting

Houle says the next questions for researchers is why debt correlates with behavioural issues, and if financial stress is affecting parenting styles.

“We’re speculating that this has to stress out the parents,” Houle said. “Our goal now is to actually dig into…does this association exist for the reasons we think it exists.”